10 bubble sitters -- appreciation may have peaked
Washington, D.C. The D.C. market ranks 10th on John Burns' list of markets facing a potential housing bubble, and home sellers in the metro market report that it's taking longer to sell than it did a year ago. Plus, builders are offering significant incentives to try to move inventory quickly. Fortune's survey suggests the market will decline slightly in 2007. Still, D.C. has a healthy economy and job market; Forbes ranks it fourth on its list great places for business and a career. And where there is business, there are home buyers.

Fort Myers/Cape Coral, Fla. Is it overvalued? Yes. Local Market Monitor reports annual housing appreciation of between 9 percent and 11 percent between 2001 and 2004 and then a 33 percent leap in 2005. Has the market topped out in housing appreciation? Not yet, but it can't absorb much more, say the real estate gurus. The market is still affordable and more reasonably priced than Sarasota (43 percent overvalued) to the north or Naples (a whopping 72 percent overvalued) to the south, but the amount of building in the market is staggering -- most of the country's major builders have strong presences in Lee County -- and land prices, once quite affordable, have increased as much as tenfold in recent years.

Chicago. The Midwest hasn't had the kind of dramatic price increases as cities on the two coasts and those in the Sun Belt. As such, Chicago isn't as susceptible to a pricing bubble as some of the other major urban areas of the country, the real estate pros say. However, the ratio of housing costs to income in the market far exceeds that of other markets in the state and job growth has been sluggish. "The big challenge in Chicago is work-force housing," Gollis says. "We're always looking at likely income growth and affordability growth or lack thereof."

Honolulu. Because of its remote location, Honolulu is tough to compare to anywhere else. After a drop-off in population in the 1990s, people have started returning to the island, Winzer says, creating a housing shortage that has contributed to rapid increases in housing prices. In 2003, the median price of an existing single-family home was $380,000, according to NAR. By end of the 2005, it was expected to be at $620,000. Currently, the economy on the island is good, Winzer says, driven by economic conditions in Japan. Fortune predicts a small, but realistic increase in values this year followed by a slight drop-off in 2007.

Tucson, Ariz. Tucson's housing market is dwarfed by Phoenix -- new construction in Tucson is roughly one-fifth of the number of units built annually in Phoenix -- but it has joined its much larger neighbor in attracting the attention of real estate investors. The NAR reported a 32-percent increase in appreciation over 12 months. The current pricing is about one-fourth higher than it should be, Local Market Monitor says. The pros look for the market to stabilize in 2006, with an increase that roughly tracks the inflation rate, increase this year, followed by a decline in pricing in 2007.